What happened the reason why some of that slowdown occurred as oppose to the prior period was bad weather successively for two years and consequently we had production suffering.ET Now | January 25, 2017, 15:22 IST

In a chat with ET Now, S Sivakumar, Group Head-Agri & IT, ITC discusses whether this budget will be a rural or farmer focussed and impact of demonetisation on rural markets.

ET Now: Whole market is abuzz with the chatter that this will be rural, a farmer focussed budget. The argument is that while four-five years back rural markets were growing at maybe 1.5 times the urban markets that growth has probably slowed down a bit, budgetary allocation has not been in line with the needs as well. My question to you is – will we need a strong budgetary allocation to have growth in the rural markets or you think that will happen irrespective?S Sivakumar: Yes, I think while it might happen but I think certainly it must be propelled by budgetary allocations. What happened the reason why some of that slowdown occurred as oppose to the prior period was bad weather successively for two years and consequently we had production suffering and not only that the price trends, the commodity prices which were rising earlier which brought some of this and prior government allocations to going into rural markets got redistributed.

If all of this needs to be put back into some kind of steam, I think one certainly will require additional budgetary allocations. We saw in the last budget very interestingly clear outcome target also taken in addition to just outlays from point of view of the farmers income saying that you would like to double farmers’ income over the next six years. I think, several schemes were put in place last year. Having seen what worked and how it worked, I think further allocation must necessarily be made on several of those initiatives to step up the income and consequently the discretionary expenditure and therefore the flourishing of markets.

ET Now: A lot is being made about demonetisation and the impact that it has on rural markets. Considering you would be the best person to ask this really, what kind of recovery have you seen at multiple touch points on the ground and by when do you see things getting back to normal in terms of the volume, price and even sentiment per se?S Sivakumar: I think one must say that rural consumers, the farmers everybody has taken this in their stride and lots of things have fallen into place soon after. The timing was that we had kharif harvest and crops had to be sold and there was liquidity pressure and rabi planting was taking place and labour had to be paid off and inputs had to be bought, I think all of that was managed reasonably well through their own methods of jugar in terms of combining multiple labour, spreading over multiple days and so on. The only segment which really suffered and that I think is gone and we do not really retrieve that is harvested perishable crops.

Obviously because of the liquidity crunch, had to be sold off at lower prices. I think those farmers really suffered. But kharif crops which are relatively not perishable crops like grains and oil seeds, which had in fact higher production than normal because of good monsoon this year that got marketed. Rest of the rabi crops actually got planted well and because of residual moisture even the planting was better and so I think that is now in one sense behind us and this drop in perishable prices is also something that is a seasonable factor in addition to issue of liquidity impacting prices which had really accentuated the whole thing.

In terms of overall sentiment is two-fold. Obviously, the rural people are fairly aligned with the thinking saying that this is going to do us good in the long run. The only pressure point is that yes they are happy to receive money in the banks, they are happy to transact digitally but spending ecosystem still has not evolved. I think for that spending ecosystem to evolve and much of cashless or less cash transactions to take place, it will be some time but I think this is one good way to make it happen quicker than what would have happened otherwise. I think people are in general not withstanding all the hardship that they went through for a limited period I think are welcoming and sentiment I must say based on wherever we have spent time on is rather positive.

ET Now: Let us try and get some specifics out here, you would have analysed the budgets as well that have come out for the last four, five, seven, 10, 15 years as well, what is that one key thing or what are those two key things that you expect the FM could announce and could have a positive impact on the space?S Sivakumar: Having taken on an outcome target in the last budget specific initiatives were announced with budgetary allocations last year. They started with soil, with water in terms of different kind of irrigation at both macro and micro level.It also went on to market linkages, it also dealt with crop insurance given that risk that exists and it also went to supplementary income in the form of livestock and so on.

Having seen now several months of execution of this one aspect is I think the allocation needs to be stepped up in some of these because given the scale of Indian agriculture and the spread I think monies that have been allocated and some of the monies which had to come from states have also fallen short. I think a combination of this in most cases one needs to see at least doubling of these allocations. And obviously there is pressure in terms of where the money will come from and therefore depending on what can get us relatively short term benefit out of these different initiatives will get a relatively higher allocation and so on but in terms of specific initiatives they are now in place and it is only a question of how do you get the right monies in to spread out whatever good results they have shown so far in terms of actually raising the agricultural output and so on.

The other measures which I think still must happen in order to improve execution is the recognition of agri services as a new evolving sector that can ensure that all of these point solutions actually translated into real output for the farmer and therefore higher income as an eventual outcome. And such agri services need to really come through other initiatives like private entrepreneurship which should get supported through Start-Up India or more skilling of these kinds of entrepreneurs. So, in the larger start up and Skilling India kinds of programs where the money is getting allocated I would expect some of this to get apportioned towards these rural trades and rural entrepreneurs and other kinds of services that can happen. So recognition of that agri service as a good propeller is something that one would see and expect certainly of this budget to translate much of these point solutions into results.

One other area which has not been dealt with which also is required in the larger ecosystem is that just more production and better productivity is not good enough, ultimately it has to get consumed by the consumers and given the perishable nature and given the volatility of the prices it is important that much of this food also has to get processed. As it is the quantum of food that we process in India from an agricultural produce is very low compared to other comparable countries. So, in order to get that processed food really expand for a consumer preference point of view, those prices need to be maintained low.

As it is the preference for fresh and on top of that if you have processed food at a much higher price and nearly a quarter of all the prices is taxes so keeping those taxes at a moderate level will expand consumption and then feed all of this production into that market and also reduce the volatility which is another major bane of the Indian agricultural system. So I think dealing with moderation of taxes in food processing when GST is on the anvil and in that context not much maybe dealt with in this budget but idea that signalling must also happen saying that food, processed food and some of these areas where relevant they must be completely exempt and where it is relevant keeping it at the lowest of the slabs, I think that signalling is very critical to ensure that we have a consumption that is supporting all these production efforts that have been taken so far. I would see these two as rather important in addition to raising all the allocations of the existing initiatives.

ET Now: Since we have you with us cannot let you go before getting a bit of a colour on your own agri business right now. What is the strategy at ITC then to grow the agri portfolio and if you could give us some more flavour on what are the kind of new launches, products and variants and categories that you may have planned especially in an environment where I guess you must be facing tough competition from players like Patanjali?S Sivakumar: Obviously with our board meeting scheduled a couple of days away as well as all the related announcements need to happen at that point so I would not be able to comment so much in the real short term kind of a perspective on this are just now. But on a strategic long term path you are aware of the ITC’s stated aspiration of getting to be a 100000 crore size in the FMCG.

So, one of the key roles of agri business is actually providing backend which is competitive to support this aspiration, much of the agricultural raw material really gets sourced through our multiple business models including ITC’s e-Choupal where we source preserved produce, our supply chains are competitive, I think from that context direct engagement with the farmer will support. So, much of the growth of agri business is a function of supporting our growing FMCG aspirations. I think market expansion is taking place, the number of times the consumption is going to expand over a period of time is so large I think more competitions are going to help create excitement in the categories otherwise a lot of it has been languishing in the informal and unbranded sector, I think more and more competition especially since you took the name of Patanjali as an Indian completion with no royalties really going away it is also a welcome player in the marketplace.

I think the whole engagement of marketing companies with the consumers is going to multiply and movement from unbranded and unprocessed into branded and processed, I think that is really a significant growth driver. And the broader strategy of ITC in agri business is that every product that we support our own brands we would expand the scale and scope of that activity by servicing other customers within the country as well as globally. So, automatically this is two sides of the same coin and that really is another area which goes into scaling this business.

And a related third dimension is that all the infrastructure we have put in place to reach out the farmers and the rural areas is also something we make use of to provide marketing services of certainly our brands as also some of the other non-compete goods whether in the agri sector, financial services as well as with things like farm machinery and farm inputs and consumer goods and so on. And that is the third space where we make use of all the infrastructure that we have to reach out to the rural markets and provide them as marketing services. So, broadly these are the long term kind of growth drivers and plans to be discussed in the board meeting in a couple of days where other announcements will happen at that point of time.

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